Tuesday, March 31, 2009

UK labour productivity collapses

UK labour productivity is collapsing. In the fourth quarter of 2008, it declined by 1.5 percent.

The reason for the decline in straightforward. Firms are hoarding workers. Demand is falling, firms are producing less, but they haven't yet got round to downsizing their workforces. However, firms are not charities. Sooner or later, firms will start to the painful process of cutting cuts and making workers redundant.

So this number is telling us to brace ourselves, unemployment is about to increase very rapidly.

I guess if the value our property portfolio is heading south, it means that we will actually have to work for a living, i.e. produce stuff for export. And that means competing head-on with the Chinese and Indians. Yikes! Real wages in the UK will collapse. UK asset values will collapse. Sterling will collapse. Inflation will skyrocket because of increased import prices. On top of that, taxes have to rise to pay for the fiscal stimulus.

Firms may not be charities, but charities are usually companies like any other company and if they run out of money, whther it be grants or donations, they too will be laying off workers or going under altogther. The smaller ones, in particular, are highly exposed to the downturn, because despite the rhetoric, charities will be among the first to lose their funding.

As a result of lower productivity I expect overall salaries in the uk to drop over the next few years. The most testing time will be with those on high mortgages whose incomes are falling and during a time when interest rates increase very quickly. There will be huge pressures on middle aged workers and FTB's in my opinion.